An Auto Maker’s New Tack in India: Starting from Scratch – New Yorker (blog)
“We have banned internally de-contenting,” Marc Nassif, the chief executive of Renault India, told me. “It’s not about reducing value but about putting value where it’s needed.”
The factory will produce a new range of cheap, entry-level cars targeted at first-time buyers in India and other emerging countries, who are graduating to automobiles from two-wheelers. The cars, which are being designed locally and will compete with low-cost models marketed by domestic manufacturers, are expected to hit Indian roads in 2015 and be priced at less than sixty-five hundred dollars.
Cracking the market could prove challenging, but there is a massive number of potential buyers in this country of more than a billion people. In India, there are fifteen cars for every thousand people, compared with eight hundred cars per thousand people in the United States, two hundred and eighty in Russia, and fifty in China, according to 2012 data from the Japan Automobile Manufacturers Association. Yet auto makers have found that India’s consumer culture is vastly different from that of, say, the United States. Most consumers spend less than thirteen thousand dollars on a new car. To succeed in India, companies have to offer a variety of low-cost cars, a vast service network, affordable spare parts, and a strong brand. In particular, customers don’t want to pay for fancy extras.
This preference has forced the Alliance to examine all the components of a car, to find out what people actually demand. The findings have been illuminating. Drivers in India want route-navigation software that offers a bird’s-eye view, but they don’t care to see a list of every restaurant or gas station for the next hundred miles. Car doors traditionally have painted exteriors, while the interior is usually padded with fabric or plastic (often in gray or beige). The Alliance found that customers who custom-order cars in red, black, or teal prefer dashes of the same color on the interior—so some of its cars will probably have “exposed” metal inside.
That means the Alliance won’t have to order extra materials, suppliers won’t cut and dye as much fabric, workers on the assembly line won’t install it, and, ultimately, customers won’t pay for it—and the company can put the money into the stuff that the customers do want to pay for, like a docking station for smartphones and music players and a navigation system.
Nassif said that Renault also learned from earlier launches of cars in India—especially its Duster S.U.V. For instance, in the Indianized Duster, Renault placed a twelve-volt charging outlet in the back of the car instead of the front, unlike in the European version: “In India, the guy who pays for the car sits in the back,” Nassif said. Renault also modified the angle of the Duster’s back seat so that it would recline more, for more comfort on India’s rough roads.
All of this is part of a shift in how the Alliance makes cars everywhere—not just in India. Traditionally, auto makers have spent millions designing and building what is known as a platform—the basic underbody on which a vehicle is built. They then install different bodies to create different car models. In June, the Alliance announced that instead of making platforms, it will assemble “modules”— the engine bay, cockpit, front underbody, rear underbody, and electronic architecture. This Common Module Family technology, as it is known, will be mixed and matched, like Lego pieces, to make various cars, an approach that the Alliance hopes will be faster and cheaper.
Since 2010, the Alliance has invested about a billion dollars in setting up the factory. It now employs more than twelve thousand people in India to design and manufacture its cars. But India is a tough market, according to a recent report from Credit Suisse: the country has strong local auto makers, like Maruti Suzuki, Tata Motors, and Mahindra & Mahindra; none of the four biggest global auto companies have even a five-per-cent share of the market. Renault-Nissan “is the one showing the highest aggression with plans to enter each segment of the market and a capacity addition plan which makes it the second largest in terms of capacity in India,” the report said. “But so far its execution has been patchy.”
Credit Suisse said that that’s partly because the companies have a poor distribution network—a critical shortcoming in this vast country, especially as more auto sales occur in rural areas—and because their brand isn’t well established locally. (Nassif told me that Renault has been working to fix these problems; Nissan didn’t respond to an e-mailed query.) Addressing these obstacles will be crucial to the Alliance’s success; after all, homegrown car companies are not only already building their cars from scratch but also already have stronger networks and brands.
Photograph by M. Lakshman/AP.